Property investment loan calculations

Property investment loans

A great property investment loan will improve your investment returns, be tailored to your unique circumstances, smooth the investment experience, and if needed, be able to grow with your growing property portfolio.

Property investors are sought-after by lenders due to their equity position, borrowing history, and potential level of future borrowing. It’s important that you use this position to secure the right investment loans to meet your finance needs.

Regardless of your situation, we’re comfortable assisting property investors, including if you are:

  • Seeking your first investment property
  • Adding to your property portfolio
  • Looking for alternative lending after being rejected by a bank
  • Buying a house for the kids
  • An international property investor investing in New Zealand

Creating wealth through property

Done properly, property investment is an excellent method of creating wealth as part of a long-term investment strategy. Historically, house prices provide a steady return to investors in the form of capital growth as property prices rise, while rent provides passive income. With the right investment strategy in place, smart property investment can be an ideal wealth creation vehicle.

Your loans

Investment loans vary greatly depending on your circumstances and what you’re looking to achieve. They can be very simple (such as your standard home loan), or something more complex that helps you make effective use of tax, gearing and repayments. To help manage your investment loans, you can also make good use of a range of loan features that vary by lender, such as redraw, interest only, offset, and additional repayments. Smart use of such features can greatly increase both your flexibility and return on investment (ROI).

What’s stopping you from getting a free review of your existing lending?

A complimentary mortgage review could save you thousands in interest over the life of your loan (or loans), helping you become mortgage-free years faster. It's not just about getting a better interest rate, it's also about structuring the mortgage(s) the right way for you. Review your existing mortgage(s).

Unlocking equity

It’s common to access the equity in one property to purchase another. If you’ve already built up equity in your home or within existing investment properties, you may be surprised at how much equity you have and the amount you may be able to borrow for an investment property. The two usual ways to achieve this are:

  • Stand-alone: You release equity as cash with a loan top-up on the property you own, for example to a 80% loan to value ratio (LVR). You then use this sum to buy the rental property with a stand-alone loan at, for example, a 65% LVR.
  • Cross-collateral: You access your equity and buy the rental property with a cross-collateral 100% LVR loan.

The implications of each method above differ. As always, your accountant and lawyer are best placed to advise you on the taxation and legal implications of each method. The financial implications are:

  • The stand-alone method: Releasing equity as cash from one property, such as your home, to contribute to the purchase of another, such as a rental, and keeping both properties independent by using different lenders has the key advantage of separation.
  • The cross-collateral method: This is simpler because one lender provides 100% of the cost of buying the rental which is secured by two properties. However, this method ties the two properties together so that if you want to sell one then the lender will also review the remaining loan.

Separating your portfolio

Separating properties by using different lenders can keep you flexible as the lending market evolves, so you’re able to consistently secure the best possible lending terms and liquidate a property if needed. It can also avoid the need to endure a portfolio review.

Portfolio review

If your lender has a mortgage over more than one property securing its loans, and you sell one property, the lender may require a full review of your portfolio. The review will be based on the lender's prevailing criteria. If the lender’s credit criteria are more stringent at this time than when you first secured the loans, then the lender is likely to demand a greater repayment from the sale proceeds than it may have required under the original criteria. This situation can be both unexpected and cause a great deal of stress, which might have been avoidable.

Non-bank lenders

First-tier lenders are banks such as ANZ, BNZ, Westpac, HSBC, Kiwibank, ASB, and so-on. For the most part, loans from these banks are very similar, although their mortgage pricing and terms do fluctuate. Typically, these banks will closely align their interest rates with the rate set by the Reserve Bank of New Zealand.

Non-bank lenders are often called second-tier lenders. They include lenders who are in the business providing finance but aren’t the traditional registered banks like those included above. Non-bank lenders include building societies and credit unions. Especially for property investors, second-tier lenders can offer loans to help buyers secure a mortgage with a lower deposit. The main difference between first and second tier lenders is the acceptable deposit for a property loan. Banks typically expect a 40% deposit for an investment property, while non-bank lenders can require as low as a 10% deposit. This can dramatically change matters for a property investor.

The non-bank, second-tier lenders also have more flexibility when encountering situations such as the self-employed or even those with an adverse credit history. This makes the property market much more accessible to investment.

New to property investment?

If you want to make a start as a property investor, the first question to ask yourself should be: “can I afford to?”. Keep in mind that in addition to your deposit (or the equity you may leverage from your own home), you will need to consider the following costs:

  • Valuation fees
  • Statutory government charges
  • Conveyancing and legal fees
  • Loan application fee – often we can get this waived
  • A contingency sum to meet any unforeseen expenses
  • Lenders Mortgage Insurance (LMI) if you are borrowing more than 80% of the property value.

That said, investing in property could cost less than you think - and you could be closer to achieving it than you realise. It would also pay for you to learn about property investment further.

Do the maths

Before taking any other steps, you’ll need to ensure the numbers work for you. Contact us to discuss the sums and your options.

What next?

Whether you’re an established or up-and-coming property investor, you have hundreds of thousands of dollars at stake. So, what have you got to lose by discussing your options with a professional who has access to a range of bank and non-bank lenders?

For a free, no obligation chat about your current or intended property investment lending with an Authorised Financial Adviser, call 0508 MILESTONE (0508 645 378) or leave your details below.